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What is Property Tax?

Property tax is one of those taxes I really just don’t like. 

Well, that said are there any taxes I like?

However, the local community gets a lot of benefits from taxes that are paid on properties. 

Community benefits and services that are paid for by property taxes such as roads, schools, water supply, and sewerage treatment and disposal. 

Today I want to give you a clear understanding what property taxes are AND MORE.

Shall we get started?


Table of Contents

What is Property Tax?

What is Property Tax?
Property tax is a tax paid on property that is owned by an individual or some other legal entity, such as an LLC or real estate investment company.

Property tax is paid annually by the owner of the property.

Typically property tax is paid in arrears. This means the taxes you are currently paying are for the previous year.

Most commonly, property tax is a real estate ad-valorem tax. Which. Most people consider property tax to be a regressive tax.

Property taxes typically calculated by a local government where the House is located and are paid for by the owner of the property. Some local governments also tax tangible personal property. Examples of these are cars, boats, or other such items.

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What is Property Tax?

KEY TAKEAWAYS: What is Property Tax?

  • Property tax is paid for by the property owner.
  • Property tax calculated by the local government where the property is located.
  • Property tax is based on the value of the entire property including the land and any improvements such as buildings or houses.
  • Property Taxes are used for maintaining utilities and community improvements such as water, sewer, roads, law enforcement, fire protection, libraries, education, and more.
  • When you sell a property for cash the property taxes can be paid for by either the buyer or the seller. 
  • The purchase agreement (AKA Real Estate Sales Contract) determines who pays the property taxes. This can be negotiated by the person selling the property.
  • Property taxes can be deducted as a personal or business expense according to the IRS.
  • If you are a real estate investor be sure to check out our tips on rental real estate Income, Deductions, and Recordkeeping. NB: You are never avoiding taxes. Instead, you are delaying taxes (e.g. 1031 Exchange) or deducting items to reduce your net income and therefore reducing tax liability.

Video Content:
Don't miss this video the role of an assessor in determining you property tax.

Below is the transcript from the video as it is not provided on YouTube. 

So there’s a lot of misunderstanding about the role of assessors and how they affect the property tax that homeowners pay.

When someone hears the term assessor they seem to think of a scary figure reaching for their wallet. Not so.

Assessors don’t set tax rates. Assessors don’t chase tax dollars. An assessor is interested in fairly determining property values, and they take great pride in it.
Property tax is determined by a simple formula. Assessors only affect one of these variables, the value. And they do so with incredible accuracy.

Assessors aren’t tax collectors or even tax centers, they’re just fellow taxpayers, and their primary goal is to make everything fair and equitable.

Imagine that you’re in a restaurant with two friends, one orders a hotdog, one orders a plate of caviar, and you order a steak. The waiter comes to the table with the total bill of $100, but he doesn’t know how much each of you should pay.

If everyone paid the same amount the guy who ordered the caviar might be happy, but what about the guy who ordered the hotdog?

Enter assessors. The food is your property. Just like these meals, some people’s properties worth more than others, and it’s the assessor’s job to determine how much each property is worth.

That’s it. So in the same way, the value of these menu items would need to be determined an assessor places value on property to ensure fairness and equity.

After the assessor determines the value of each property, local governing bodies will set their budgets for the coming year. They set the tax rate in order to produce the dollars needed for their budgets. The value of a property does not affect the ammount of properties actually paid.

The sum total of all those budgets is a set number that has to be divided up among all the property owners.

So even if everyone’s value was cut in half by the assessors, the tax rate will be raised in order to generate the same amount of tax revenue.
The assessors don’t determine the taxes you pay, they just determine the values of properties to keep everything as fair and equitable as possible.

When you notice a change in your property’s assessed value that changes the result of a never-ending quest for fairness and accuracy, assessors are graded on their performance, so there is a detailed system to get accurate valuations.
First, the assessor looks at similar properties that have sold their sale prices and the terms and conditions of each sale.

That’s the reason your home won’t just be compared to the place next door.
Studying things like square footage, age and location help assessors determine how comparable another property is to yours.

Even seemingly small details like an extra bathroom or a finished basement can result in significant differences in value in two otherwise identical homes.
Assessors maintain a thorough database of real estate information to make this process as precise as possible.

Changes in value are typically the result of local real estate market sales or major changes to a property. Remodel a kitchen or finish your basement and your property’s value could increase.

When you see your home’s assessed value, you can rest assured that the number has not been drawn out of a hat you’re generated with anything but equities and accuracy in mind.

Long story short, assessors are here to help, not trying to hinder. Their focus is accurate values without tax collection.

The only things in assessor chases are fairness and equity and they take great pride in it.

What is Property Tax used for?

What is Property Tax used for?

Generally, property tax is used by the local government to pay for things like:

  • Water supply for your neighborhood
  • Sewer and wastewater treatment and disposal
  • Road improvements.
  • Police and Law enforcement
  • Fire Protection
  • Education and Librairies.
  • ANY other shared services that the community can benefit from.

How is property tax calculated?

How is property tax calculated?

The amount of tax property owners must pay is determined by multiplying the property’s current market value by the property tax rate.

The property tax rate is determined by individual local governments.

Predominantly, almost all property taxes are levied on real property which is normally legally defined and classified at the state level.

Some examples of real property include the land, the buildings, any structures, and any other improvements that have been made on the land.

Who pays the property taxes when I sell my house for cash?

Who pays the property taxes when I sell my house for cash?

A common question when people sell their property to cash home buyers is:

“Do I have to pay for the property taxes?” AND

“Can I make the buyer pay the property taxes when I sell my house?”

The simple answer is YES. You can make the cash buyer pay the property taxes at closing. 

When selling a property for cash or selling any property the person who pays for the property taxes can be negotiated. It is a common card real estate investors play during the negotiation process.

Once it is decided who will be paying the property taxes it must be recorded in the purchase agreement (AKA real estate contract) to be binding.

It is a huge advantage knowing that you can ask the buyer to pay the property taxes as this could be quite a lot of money.

Many homeowners do not understand that they can ask the buyer to pay the property taxes.

Is Property Tax the Same as Real Estate Tax?

Is Property Tax the Same as Real Estate Tax?

People often use the terms real estate tax and property tax interchangeably. However, this is only partially true.

Real estate tax is indeed a property tax. However, property tax is not always a real estate tax.

Do you want to add a word to our dictionary?

Send us your word, AND the definition if you have it. Not only will we be happy to publish it but will be happy to give you recognition too.